Billion dollar viatical shock wave breaks

IN LAST week’s The Resident, we reported that Fort Lauderdale-based Mutual Benefits Corp (MBC), a company selling viatical life insurance policies, had been suspended from trading. Federal and state agents in Florida have, apparently, seized the company’s financial records, frozen its assets and appointed a receiver to administer what has been described as a ‘giant Ponzi scheme’, where new investor money is used to pay premiums of older policies.

Meanwhile, here in the Algarve private investors are coming to terms with the news that the heavily touted policies supplied by Mutual Benefits Corp via Standard Provident International S.L. (SP) could be worthless. And the US press is reporting that at least 29,000 investors, both in the US and abroad, are believed to have paid more than http://www. billion to the company.

Investigators say the case could be the largest fraud ever prosecuted in the viatical industry, in which investors buy future interests in the life-assurance death benefits of terminally ill individuals, such as AIDS patients. “It’s giant,” said Glen Hughes, an enforcement investigator for the Florida Department of Financial Services fraud division. “I don’t know of another case that has a dollar amount like this.”

Are Algarve investors affected?

But what impact will the scandal have on Algarve based investors? John Westwood, from Blacktower Financial Management Limited in the Algarve, says it is hard to know how many people were tempted to invest in the viatical scheme, which offered fixed returns of between 12 and 72 per cent on the original amount invested. But he says that given the time and money that Standard Provident and MBC invested in attracting Algarve based investors to the scheme, hundreds of people could lose out.

Standard Provident advertised extensively in the local press, including in The Resident. We contacted David S Vance, Director of Standard Provident, Costa del Sol, who held an investment seminar in the area in March 2003, that was attended by over 200 residents, in order to gain buyers for MBC’s viatical policies. Back in 2003, Vance was quoted in The Resident, extolling the virtues of MBC’s viatical products. “Investors are in no mood to listen to financial fairy stories at present,” he said. When we contacted him this week, he refused to comment on how many residents had put money into MBC policies via SP. When asked what MBC investors should do next, he suggested that they contact MBC directly (the help-line is given at the end of the article).

Retired were badly hit

Meanwhile, over in the US, officials have begun the long process of determining how much money is still available to pay the thousands of investors, many of them apparently senior citizens, who in some cases had invested their retirement savings with the company since 1994. The State of Florida has filed 15 criminal fraud counts and one racketeering count against the company. In addition, the Securities and Exchange Commission has filed civil fraud charges against the company and its three principal officers, alleging, among other things, that the officers siphoned off more than http://6 million for themselves and family members.

SEC investigators are allegedly claiming that MBC misrepresented the risks of the investments and fabricated the life expectancies of terminally ill patients so it appeared they would die within one to three years. But it is alleged that, as of September 30, 2003, 90 per cent of the insured patients had not died. Teresa Verges, assistant regional director at the SEC’s Miami office, is reported as saying that the case was particularly sad because many unsophisticated elderly investors were lured into investing from http://www.0,000 to upwards of http://www.00,000.

US example

One case that has been extensively reported in the US media, is that of 75-year-old investor Dorothy Yarnell. According to news articles about MBC, she says she is not optimistic that she will ever get her money back. She and her husband, Gerald, 82, bought a MBC viatical in August 1997, for http://www.0,000. They claim that they were told they could expect a 12 per cent return within a year, when the AIDS patient whose policy they bought a piece of, was projected to die. But they say that they were never paid any money, and now need the cash for medical bills. “We’d like to have the principal back,” she said. “But at this point we’d settle for anything. I thought we were too old to get taken. But I guess you are never too old.” Officials say the Yarnells are typical of thousands of individuals who bought the unusual investments, which became popular in the mid-1990s at the height of publicity over the AIDS epidemic.

Fraud played on compassion

It was a type of fraud that played on compassion, according to John Westwood. In an article in the March 21, 2003 edition of The Resident, we reported on the Alternative Investment Seminar, held jointly by SP and MBC. Steve Steiner, Vice President of MBC, explained to attendees that MBC was involved in caring for many terminally ill patients and made major donations to cancer hospices and HIV foundations.

How the scam worked

MBC bought insurance policies from AIDS patients for a discounted value. It would then break the policies into shares and sell them at a profit to investors. If and when the AIDS patient died, the investor would get his or her money. But, by 1995, new drugs were allowing AIDS patients to live longer. The problem was compounded by the fact that many insurance companies did not require full medical examinations for life policies of http://www.00,000 or less, and some AIDS patients, motivated by a chance to raise money, obtained these policies fraudulently, by claiming they were not ill.

The charges against MBC allegedly claim that the company took advantage of investors’ lack of knowledge of AIDS. It is also claimed that sales agents, who are believed to have made commissions of between six and 12 per cent on each viatical they sold, failed to adequately inform investors about the risks.

What to do if you invested with MBC

A Florida judge has appointed Miami lawyer Roberto Martinez as the receiver to take charge of MBC’s money, which is allegedly held in more than 20 banks. Officials say that they have records of investors and will be able to determine how many may get their money back, most likely on a pro-rata basis. The receiver has established a hot line number, 001 305 577-1099, and a website,, for investors to get more information. However, if you are still concerned about any investment you have made in MBC products, please contact The Resident and we will endeavour to assist you in gaining impartial advice about what to do next.